In a filing with the US Securities and Exchange Commission (SEC), King Pharmaceuticals Inc. (KG) reported third-quarter earnings of 16 cents per share, a penny below the year-ago earnings. The Zacks Consensus Estimate was 19 cents.
Revenues fell 19.2% to $374.5 million mainly due to the lackluster performance of several key products and the entry of two generic versions of Skelaxin. Revenues, however, exceeded the Zacks Consensus Estimate by $7.5 million.
Quarter in Detail
King Pharma’s branded Pharmaceuticals segment declined 43.3% with revenues coming in at $160.8 million. Revenues of almost all key products declined from the year-ago period.
Thrombin-JMI sales declined 25.9% to $32.2 million. We expect Thrombin-JMI sales to continue declining due to tough competition in the form of Bristol-Myers Squibbs’ (BMY) Recothrom and Johnson & Johnson’s (JNJ) Evithrom.
Meanwhile, Skelaxin (metaxalone), which posted sales of $91 million in the first quarter of 2010, saw a huge drop in sales due to the entry of two generic versions early in the second quarter. Skelaxin sales plunged to $6.8 million in the third quarter of 2010, down from $102.1 million in the year-ago quarter.
According to IMS weekly prescription data, for the week ending October 22, 2010, generic competitors captured about 85% of the prescriptions in the metaxalone market. King Pharma received $25.2 million in the form of royalties from sales on the authorized generic version of Skelaxin.
Avinza revenues declined 11.4% to $27.3 million, mainly due to declining prescriptions (down 30.7%).
Embeda, obtained through King Pharma’s acquisition of Alpharma, posted sales of $10.2 million, down 32% sequentially. Embeda was launched in the third quarter of 2009; revenues declined 9% from the year-ago period. Sales were affected by voluntary product recalls announced by King Pharma during the first half of 2010. These product recalls were due to post-manufacturing testing issues. Two more lots of Embeda have been recalled so far in the fourth quarter.
Flector Patch, another product obtained through the Alpharma acquisition, was the only product to record growth during the third quarter. An increase in wholesale inventory levels accompanied with a price increase taken earlier this year helped boost FlectorPatch sales to $42.4 million, up 5%. Prescriptions, however, declined 8.3% during the quarter.
Revenues from the Animal Health business were $92.7 million in the reported quarter, down 3.3%. The Animal Health business should provide positive cash flow and diversification.
We were pleased to see King Pharma’s Meridian Auto-Injector business continue to perform well. Third quarter revenues came in at $83.6 million, up 16.4%. Price increases, higher sales and royalties on EpiPen helped offset the impact of lower government orders. The company also signed a signed a new supply agreement with Dey Pharma, under which the EpiPen collaboration will run through 2020. Under the new contract, King Pharma will receive higher prices and royalties (effective January 1, 2010).
Operating expenses declined to $140 million. While selling, general and administrative expenses declined 15.8% to $114.3 million, research & development expenses increased 13.4% to $25.7 million.
King Pharma said that it remains on track to re-submit its marketing applications for opioid candidates, Remoxy and Acurox. While the Remoxy application should be re-submitted to the US Food and Drug Administration (FDA) by year-end, the marketing application for Acurox (without niacin) is scheduled to be re-submitted in the US in the first quarter of 2011.
Neutral on King Pharma
We currently have a Neutral recommendation on King Pharma, which is supported by a Zacks #3 Rank (short-term “Hold” rating). In October 2010, King Pharma entered into an agreement with Pfizer (PFE) whereby Pfizer will acquire King Pharma for $14.25 per share.
The offer price represents a 40% premium on King Pharma’s closing price as of October 11, 2010. The Boards of both companies have approved the deal, which is scheduled to close later this year/early next year.
KING PHARMACEUT (KG): Free Stock Analysis Report
Zacks Investment Research
